Following on from our previous guide to mortgages, we have compiled a list of frequently used words and phrases surrounding this financial agreement and provided you with the meaning.
You need never be baffled again when seeking mortgage advice…
- Agreement in principle (AIP) – a document provided by the lender that states you will be able to borrow a certain amount of money.
- Annual percentage rate (APR) – the overall cost of a mortgage, including the interest and any additional fees.
- Arrangement fee – a set-up fee for the funds you will borrow. It is possible to add this to your loan, but this means you will also pay interest on it for the whole term.
- Capital – the amount of money you borrow to buy a property.
- Capped rate – if your mortgage deal has a ‘capped rate’, the interest charged by your lender will never exceed the limit set – regardless of the Bank of England’s rate.
- County Court Judgment (CCJ) – these are made against you for non-payment of your loan, which could in turn make it harder for you to get another mortgage in the future.
- Collar – if your mortgage has this, your interest rate will never fall lower than the specific amount. So, if you’re collared at 4% and the rate drops to 3%, you will miss out on the savings.
- Deposit – this is the amount of money you must put down YOURSELF towards the cost of the property. The minimum deposit will usually be 5% of the total cost of the property.
- Early repayment charges (ERCs) – penalty fees you must pay if you repay your mortgage early, or make an overpayment.
- Equity – the amount of the property that you own outright, in other words your deposit plus the capital that you’ve paid off on your mortgage.
- Freehold – you own the property and the land it sits on.
- Guarantor – a third party who agrees to meet the monthly repayments if you are unable to.
- Higher lending charge (HLC) – this is sometimes charged by your mortgage lender if the amount you’re borrowing is over 75% of the property’s value.
- Leasehold – you own the property, but not the land that it sits on.
- Mortgage deal – a formal contract between lender and borrower, which outlines the legal obligations of the borrower and the rights the lender has if they fail to make a repayment.
- Mortgage payment protection insurance (MPPI) – insurance that covers your mortgage, usually for the first year, if you are unable to make repayments for circumstances out of your hands – work sickness, accident or unemployment.
- Mortgage term – the period of time you’re taking out your loan for.
- Remortgage – when you change your mortgage without moving to a new house. This can be done to save money, to change your loan type or to release equity.
- Stamp duty – this is tax payable when you buy a property for more than £125,000.
- Tie-in period – this is the period in which you are ‘locked in’ to your loan. If you decide to leave early you will be charged a fee to leave.
We hope that this mortgage jargon buster helps you to further understand how mortgages work.
If you require any further advice, or simply want to speak to one of our sales and lettings team regarding a property, you can get in touch with them here.